Answers: Sales commission structures

Question: We run an outbound call centre that contacts prospective customers to switch their spend from their current providers to our company. At present the sales advisors are paid a salary on or just above the marketplace value, with a commission structure that pays from first sale. This then has the benefit for all staff that they are paid a commission whether they deliver target or not.
My questions are:

Is it more beneficial to pay a lower basic salary and a higher commission and what would the pros and cons be of this?
Is it more beneficial to pay a higher than marketplace basic salary with a low commission/no commission?
Is it more beneficial to pay Team Managers a monthly commission or end-of-year commission based on delivery and behaviours throughout the year?
Is it more beneficial to pay the sales operations managers a monthly commission or end-of-year commission based on delivery and behaviours?

Any advice gratefully accepted

Answer courtesy of Helen Greenwood, Cactus Search (www.cactussearch.co.uk)

Generally there is no ‘one rule fits all’ approach to bonus and commission / balancing it with basic pay. The right method is entirely based on the type of company / sale involved, the level of the employee and competitors in the area.
In terms of lower basic and higher commission vs higher basic and lower commission again, it is a given to say that people are motivated by different needs. For example – someone who is settled with a mortgage and family may be more motivated by a higher basic and will see a bonus as a ‘bonus’ but the most important factor is what they are guaranteed to take home each month. On the flip side to this, if you get the type of candidate who is fresh, chomping at the bit, raring to go, so long as the commission is realistic and is sold correctly at interview (or even the advertisement) then as long as it isn’t below market rate, the basic, although important, can be lower, as they will be more motivated by what they could earn.
It is always worth researching what your competitors are paying in the local area, it is amazing how flighty some people can be for a little more per hour, or if they are offering better commission / benefits.
In terms of when the commission gets paid, again, dependant on the individual who is receiving it. However to balance it out from a business point of view, perhaps a good model to use would be for an annual bonus to be paid, the amount dependant on how much % of the monthly target was hit / over achieved. (Team managers on % of team achieving)

Answer courtesy of Oliver Butler, Business Development, Communications at Practique, a Merced Company (www.mercedsystems.com)

The sole reason for paying staff on a commission is to motivate certain selling or servicing behaviour. Commission and other incentives drive exceptional performance among employees, and thus help operations to achieve overarching company goals, both efficiently and effectively. Within reason, it is almost always more beneficial to pay a lower basic salary and higher commission. This structure promotes a focused and enthusiastic workforce and effectively pays for actual performance.
While circumstances may vary, it is typically better not to pay a higher-than-market base salary. The reason for this goes back to the notion of sales commission plans as performance motivators. The more potential employees have to earn on their daily, monthly, or yearly performance, the more likely your organisation as a whole is to achieve high level operational goals and revenue targets. In addition, typically high base rate salaries with little or no commission are more likely to deter ‘top talent’ from applying and instead attract weak sales people given the lack of commission incentives.
An ideal commission cadence for Team Managers would be both monthly and annually, as each payment term motivates different behaviours. Paying Team Managers monthly commission incentivises immediate action among staff. Because the selling environment for many companies can vary seasonally, having a monthly commission programme offers upper management the ability to quickly react to changing market needs and trends – whether it’s adjusting price because of large inventory levels or increasing a promotion period in response to competition. Annual commission, on the other hand, drives consistent top performance. An annual commission should be based on total company performance, so that, as a group, staff can elevate each other’s behaviour and be held accountable for helping to achieve the company’s principle objectives.
Similarly to the Team Managers, above, it is best to pay Sales Operations Managers both a monthly and an annual commission. However, of these, monthly commission is often more important, because it drives immediate action. Sales Operations Managers tend to be more interested in profitability – analysing and understanding business drivers – and therefore must be able to react to real-time financials. This is where an Incentive Compensation Management (ICM) system such as Practique’s INCA comes in to play.

One example of a company using a system like this is STA Travel. Their sales agents tend to log in to their individual commission statements immediately before and straight after their shift finished. Real-time transactions are logged enabling staff to immediately see their earnings and performance against targets, at any given time in the month. Managers can get a real-time overview of what’s selling and what’s not. This in turn allows them to model potential pricing re-structures and promotions to forecast how an adjustment might affect sales. STA Travel claim to have increased their overall sales productivity by 11%, as well as focus on profitable sales channels including insurance, which increased by 22%, and accommodation, which improved by 14% in a 12 month period.

Answer courtesy of Paul Weald, RXP (www.rxp.co.uk) Put simply, the role of any call centre agent is to talk to customers and to handle enquiries, resolve issues and process orders so that company objectives can be met. In order to be successful, those agents need to be given clear and simple goals with an incentive scheme that reinforces these objectives. In an outbound sales environment such as yours I would guess there would be several KPIs:

The amount of talk time per agent – which reflects the frequency that conversations take place each, compared to admin and other non selling activities;
The number of right party contacts made – which reflects the opportunities to talk to a decision maker to switch to your company;
The quality of those conversations – which reflects the selling skills to overcome objections and importantly, to avoid mis-selling;
And last, but not least, customer satisfaction for those callers who decide to change their provider – both to your company, and also who ‘churn’ away from your organisation.

So your incentive scheme needs to do several things – encourage agents to spend more time on the phone, gain access to DMCs (decision maker contacts) and then convert those opportunities.

One of our clients, who runs an outbound telemarketing centre, is just introducing a new salary package where bonus is worth 50% on top of a base salary. Those agents who achieve OTE (On Target Earnings) will be earning well above market rates. However, in any month, if a range of measures including talk-time percentage, quality scores and customer satisfaction do not meet a threshold then an agent may lose part or even all of the commission that they are eligible to receive. In this way the incentive scheme can support the centre’s overall KPIs.